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JohannesBorgen Profile picture
@jeuasommenulle
Sep 21, 2020 • 4 tweets • 1 min read • Read on X
HSBC AT1 investors are not too happy about the risk of seeing the bank flagged as an "unreliable entity" by the Chinese authorities. Arguably, this move in AT1 is much more significant than the equity move (which happens in a sea of red anyway)
(& now, this isn't about #FinCEN)
& no*, sorry!
For those unfamiliar with the concept, what is it ?
It's a list Chinese authorities are said to be preparing which should stop companies on the list from engaging in import or export with china 1/2
Also from investing in China and which could also ban or restrict individuals from entering China.

Lots of "could" and "may" because the list and its impact are not final yet. But HSBC has been rumoured many times to be on it - mostly because of the Huwaei story

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More from @jeuasommenulle

JohannesBorgen Profile picture
Jul 2
France is famous for wine, cheese, Versailles, football… and credit ratings.

Today I’m going to tell you how French banks will save billions of capital thanks to an old institution & a magic trick

Read till the end, it’s the wonderful story of a ruling worths tens of billions
Let’s go back to Deutsche Banks’ recent disclosure that Basel 4 will cost them 15bn of capital (with 13% CET1r assumption).

See linked thread:

It all boils down to the fact that under Basel 4 banks will have to calculate their risk exposures using the max of

i) their internal models’ calculations and

ii) 72.5% of the “Standard” (=supervisory) models, also called the output floor.
Read 16 tweets
JohannesBorgen Profile picture
Jun 30
Why is Deutsche stock hammered today?

An old theme is coming back to haunt them: Basel 4!

Quick thread. Image
After almost 10y of discussion the package was finally enacted with full implementation in 2033.

Everyone felt, after many EBA reports & banks' disclosures, that impact would be mild.

But for first time banks are publishing capital ratios w/ the new rules and for DB it's ugly
How does it work? Banks are still allowed to use internal models, but the RWA (in 2030/2033) must be at least 72.5% of the standard (non internal models) RWA. ("output floors") and for DB that's a 33% increase!
CET1r would go from 13.8% to 10.35%! Ouch! Image
Read 4 tweets
JohannesBorgen Profile picture
Jun 23
Why is the latest EC proposal on securitization a big deal for banks and how does it change the SRT market?

A slightly geeky thread - with some backround on the SRT market if you're not aware of this important market.
First what’s a SRT?

Following secular finance practice of reinventing the wheel but changing its name, the new trendy capital optimization transactions are “significant risk transfers”, but they’re just good old securitizations (invented in the 1860s 😊.)

(cash or synthetic) Image
The reason they’re now called SRT is a regulatory one.

The 2013 CRR (Art 244/245) allowed banks to get capital relief under some conditions, essentially that “significant risk” was transferred to someone else.
Read 15 tweets
JohannesBorgen Profile picture
May 23
Are you readyyyyy for LDI take 2?

Hear me out. Something’s brewing in the UK Gilt market.

#LettuceLiz Image
As the chart above shows, the cash swap spread has moved significantly & one-way recently.

Spread to swap is now 50bps.

But EU & UK insurers book their liabilities at NPV using swap curves, not UKT curves.

Still with me ?
This means that Gilts have become an excellent investment for life insurers.

The CSM for new business is going down (but still positive) but the charge for credit is now 0 so ROE increase significantly.

So far so good.
Read 7 tweets
JohannesBorgen Profile picture
Apr 8
Bloomberg has some nice charts on the tariffs’ impacts.

The first one argues that tariffs on China are coming globally: too many countries will see a spike of imports from China & that's not sustainable. Image
The second shows GDP impacts, taking into account direct effects + indirect via trade partners (using a WTO macro model, so, you know...)

SE Asia impact is massive, -1% for EU, -1.3% Japan and -2.5% Korea. Mexico bonanza. Image
Some details on who’s going to stop which exports – very interesting split (especially if you try to model loan losses 😊). Overall 30% drop in US imports of goods (with retaliation modelled as 50% of US). China is -85%, Vietnam -75%, Taiwan, Japan, Korea Thailand -50%, EU -40%. Image
Read 4 tweets
JohannesBorgen Profile picture
Mar 5
A week ago the Swiss gvt bravely decided to leave the decision on UBS capital requirement to Parliament.

I’m not sure that was such a great idea – as the recent proposal of the Swiss Social-Democratic Party shows.

If implemented, it would be a massive game changer. A thread.
First, a reminder: the SDP is not a fringe party, they’re #2 in the National council (41/200) & #3 in Council of States (9/46) & they’re also not particularly extreme (I mean, Swiss rarely are.)

But their proposals for UBS are a bit wild.

Let’s unpack.
1) A new leverage ratio surcharge of 3% for assets >300bn$ - in practice it means 40bn$ more capital required (out of approx 85bn of equity).

Ouch.

And having the biggest req on a non-risk adjusted basis is not exactly a very safe approach imho
Read 12 tweets

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